M1 Finance vs Wealthfront: Who They're Best For
M1 Finance and Wealthfront are so different that you will not confuse them for one another. There's no series of questions at M1 Finance, assessing your appetite for risk or your target date. What you get with M1 is an incredibly flexible investing automation platform, but not much beyond that if you want a more comprehensive approach incorporating your financial goals. At Wealthfront, you'll get a lot more guidance and plenty of goal-setting assistance, but the portfolios are not customizable beyond your risk preferences. We’ll look at these two robo-advisors head-to-head to help you decide which one is the better fit for your portfolio.
- Account Minimum: $100 ($500 minimum for retirement accounts)
- Fee: 0%
- Perfect for self-directed investors who feel comfortable managing pre-built and customized portfolios
- Ideal for clients seeking socially conscious investments or other unique customizations within a robo-advisor service
- There are no trading fees or asset management fees, and you can borrow against the value of your portfolio
- Account Minimum: $500
- Fees: 0.25% for most accounts, no trading commission or fees for withdrawals, minimums, or transfers. 0.42%–0.46% for 529 plans. Underlying portfolios of ETFs average 0.07%–0.16% management fee
- Great for those looking to connect all their financial accounts to see the bigger picture
- Designed for people who would like to set and track their goals
- Access to a portfolio line of credit for those interested in a loan
- If you are someone who has an account of $100,000 or more you get access to additional securities
As we will see throughout this head-to-head, M1 and Wealthfront are coming at automated investing from very different angles.
This is not an advisory service registered with the SEC and clients cannot interact with a “human” or “digital” advisor. It is, however, is an automated investing platform built around portfolio management and automation. As such, it doesn’t have many tools for setting goals beyond several dozen articles about retirement savings. Money is not “bucketed” for specific goals but rather for the overall growth of assets. Simply put, M1 doesn’t care why you are investing, it just focuses on helping you do it better.
On the other side, Wealthfront’s goal planning is the best of all the services we reviewed this year with very specific ways to forecast your financial needs. If one of your goals is to buy a house, Wealthfront uses third-party sources such as Redfin and Zillow to estimate what that will cost. College planning gets extremely granular, with forecasts of tuition and costs at thousands of U.S. universities from the Department of Education. Your dashboard shows all of your assets and liabilities, giving you a quick visual check-in on the likelihood of attaining your goals. You can even figure out how long you can take a sabbatical from work and travel, while still making your other goals work.
When it comes to retirement planning, M1 Finance does have some useful retirement-focused articles. For the most part, however, clients must educate themselves about their own retirement needs. If you are investing for retirement, you can choose to invest in a target-date portfolio made up of exchange-traded funds (ETFs), but M1 Finance doesn’t point this out to you or suggest it.
Here again, Wealthfront’s coaching is excellent. The platform’s retirement planning takes Social Security projections into account. Once all of your financial accounts are entered, including external individual retirement accounts (IRAs), 401(k)s, and any other investments you might have, Wealthfront shows you a picture of your current situation and your progress towards retirement. All of this can be done without talking to a human. Wealthfront’s Path planning tool helps you compare your projected retirement income against your current spending habits so you’ll be able to see whether you can maintain your lifestyle later. This helps clients identify any gaps and work to make up the difference before it is too late.
Both Wealthfront and M1 Finance offer the most commonly used accounts, but Wealthfront has an additional option in the 529 college savings plan. If you are specifically looking for a 529 plan, then Wealthfront has the edge. Beyond that, both platforms have the account types you will likely need.
M1 Account Types:
- Taxable accounts (individual and joint)
- Traditional IRA accounts
- SEP IRA accounts
- Trust accounts
Wealthfront Account Types:
- Taxable accounts (individual, joint and trust)
- Traditional IRA accounts
- Roth IRA accounts
- SEP IRA accounts (for the self-employed and small businesses)
- IRA transfers
- 401(k) rollovers
- 529 college savings plan accounts
- High-interest cash accounts
Features and Accessibility
M1 Finance and Wealthfront are both easy to set up and get investing, offering excellent desktop and mobile experiences. When it comes to features, both offer borrowing against your portfolio as an option. Wealthfront’s service improves as your assets under management grow, offering stock-level tax-loss harvesting. M1 starts off fully realized, with an incredible amount of choice as well as a screener to help find the right customizations for your portfolio. Here again, it comes down to which features you will actually use. Novice investors may find M1’s choice and screener intimidating, while experienced investors may similarly feel stymied by Wealthfront’s lack of customizations.
- Socially-responsible investing: Clients can build socially responsible portfolios through a Nuveen partnership.
- Impressive portfolios and platform: Clients can choose from over 80 expert portfolios constructed from an extensive ETF and stock list. These can be broken into “pies” that allow tremendous customization, including pies built from other pies.
- Borrow against accounts: Clients can take a loan that’s limited to 35% of account value at a relatively low-interest rate through the M1 Borrow feature.
- Transparent: The firm is extremely transparent about how it generates revenue since it charges no management fee.
- 529 college savings: These accounts are rare among robo-advisors. Fees are slightly higher because these plans include an administrative fee.
- Wealthfront Cash Account: Wealthfront offers a high-interest cash account paying .35% annual percentage yield (APY) (as of July 2020) with no fees, unlimited transfers, and FDIC insurance up to $1 million.
- Portfolio Line of Credit: Accounts with more than $25,000 have access to a line of credit. There’s no credit check or credit score impact, and you can borrow up to 30% of your account.
- PassivePlus investing: Wealthfront’s rules-based investment strategies aim to maximize client investments using tax-loss harvesting. At higher asset levels ($100,000+), the company offers stock-level tax-loss harvesting and risk parity. At $500,000 and up, the strategy includes Smart Beta, which weights the stocks in your portfolio more intelligently.
M1 Finance charges no management fee to build portfolios from an extensive list of stocks and ETFs with low expense ratios that average between 0.06% and 0.20%. M1 charges no trading fees. M1 Plus is a $125 per year premium option with higher checking and savings interest, cashback on debit card purchases, a second trading window on days when the markets are open, and lower lending rates. Accounts with less than $20 and no trading activity for 90 days are charged a maintenance fee.
Wealthfront has a single plan, which assesses an annual advisory fee of 0.25% with a minimum of $500. Larger accounts at Wealthfront qualify for additional services at no extra cost. Accounts over $100,000 are eligible for a stock-level tax-loss harvesting service. Accounts over $500,000 can opt into the Smart Beta program, which re-weights the holdings in your portfolio using Wealthfront’s proprietary system.
M1 Finance and Wealthfront are tied in terms of minimum deposits when it comes to retirement accounts, but M1 Finance does allow investors to open taxable accounts with just $100.
- M1 Finance: $100 (taxable accounts); $500 (retirement accounts)
- Wealthfront: $500
Wealthfront and M1 Finance both lean on Modern Portfolio Theory (MPT), but M1 Finance builds off this approach to create many, many more choices.
M1 Finance's expert portfolios combine elements of MPT and thematic investing to generate a laundry list of options. They place trades just once per day during a “trading window,” putting transaction timing out of the account holder’s control. Portfolios are rebalanced at least once a month and you can force a rebalance at any time. Each stock and ETF is displayed as a slice of a pie representing the portion of the portfolio. If a stock or ETF has shrunk compared to the desired allocation, that slice looks like it has shrunk, whereas a stock or ETF that is outperforming the rest of the pie appears as though it has outgrown its original area. When you make a deposit, the shrunken slices are shored up. In taxable accounts, withdrawals are managed in a way to limit your tax bill.
At Wealthfront, you’re asked a few questions about your attitude towards risk and when you might need the money to determine the portfolio for each goal you’ll invest towards. You’re shown the exact portfolio prior to funding your account, but you cannot customize the pre-set portfolio at all. If you have more than $100,000 in your Wealthfront investing account, you can choose a stock portfolio rather than portfolios of ETFs. You can also put some companies on a restricted list if you’d rather not invest in them.
Both M1 Finance and Wealthfront pay attention to taxes as part of protecting your investment returns. M1 Finance considers the impact of capital losses and wash sale rules in taxable accounts before the sale of securities. Similarly, All Wealthfront accounts are eligible for tax-loss harvesting.
Both M1 Finance and Wealthfront utilize heavy-duty 256-bit SSL encryption on their websites. Fingerprint, facial recognition, and two-factor authentication are available on mobile devices.
Apex Clearing handles client funds at M1 Finance, providing access to Securities Investor Protection Corporation (SIPC) insurance and private excess insurance. Checking accounts at M1 Finance are insured through the FDIC.
Wealthfront is a member of the SIPC and client accounts are protected up to a maximum of $500,000. The site actually had an article on why SIPC insurance doesn’t protect investors in the way they think it does, but the company still holds the coverage – likely because they have faced too much client friction on the matter. Wealthfront’s trades are cleared at RBC Correspondent Services, a Canadian company that focuses on wealth management and financial advisors rather than clearing firms that serve broker/dealers with very active traders.
M1's customer support is provided over the phone or via email, but there is no online chat. There are very detailed FAQs available that answer the majority of customer queries. Some of the FAQs include video walkthroughs of a particular feature.
Wealthfront also lacks an online chat feature on its website or in its mobile apps. There is a customer support phone line if you need help with a forgotten password. Most support questions posed on their Twitter account are answered relatively quickly, though we saw one that took more than a week before there was a response.
Calling a winner in this head-to-head is difficult. In all honesty, investors are well served by either of these platforms. The catch is that they are meant for different types of investors. M1’s target customer has a long-term focus and has used a traditional online brokerage to invest in stocks and ETFs. This target investor is looking for a lower-cost alternative that allows fractional share transactions to personalize a portfolio. For these investors, M1 Finance offers a unique combination of automated investing with a high level of customization, allowing you to create a portfolio tailored to your exact specifications. You can create portfolios containing low-cost ETFs or use individual stocks—or both.
In contrast, Wealthfront’s goal-setting and planning technology is targeted at young or inexperienced investors who don’t know where to start. In this respect, Wealthfront is excellent and should serve as a model for sites that offer perfunctory advice. Anyone can take advantage of Path, Wealthfront’s free financial planning tool. It’s worth taking a look at the scenarios provided by Path even if you have an account at another institution. The other three pieces of Wealthfront’s offering—Invest, Save, and Borrow—can help you accumulate wealth and open a line of credit without any fuss.
In our 2019 review, Wealthfront edged out M1 Finance in the customer support categories like goal planning and customer service, but M1 Finance outperformed Wealthfront in the investment-focused categories including portfolio contents, portfolio management, and user experience. Choosing between them depends on who you are as an investor. If you are coming from managing your own portfolio and looking to automate the tedious parts, then M1 Finance is perfect for you. If you are looking for a turn-key portfolio that you don’t need to think about, then Wealthfront is the better fit.
Investopedia is dedicated to providing investors with unbiased, comprehensive reviews and ratings of robo-advisors. Our 2019 reviews are the result of six months of evaluating all aspects of 32 robo-advisor platforms, including the user experience, goal setting capabilities, portfolio contents, costs and fees, security, mobile experience, and customer service. We collected over 300 data points that weighed into our scoring system.
Every robo-advisor we reviewed was asked to fill out a 50-point survey about their platform that we used in our evaluation. Many of the robo-advisors also provided us with in-person demonstrations of their platforms.
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